One thing Mr. Castro may already know from his five years as mayor of San Antonio: federal funds from an agency like HUD can come with a lot of red tape.

HUD’s inspector general dinged San Antonio in a 2012 report examining the city’s use of some $8.6 million in federal funds, concluding that the city hadn’t followed the letter of the law in administering the money. The report didn’t recommend follow-up action because it said the city was taking the necessary steps to remedy any oversight woes.

Beginning in 2008, the government started providing federal funds to certain cities that could give the money to local non-profit groups to acquire, renovate, and resell blighted properties, including foreclosures. But the funds came with some strings attached, including ensuring that the funds were allocated in a competitive way. Homes also were subject to certain affordability provisions, including that they were being sold to low- and moderate-income borrowers, among others.

The inspector general’s report found that the city had paid more than $2.5 million for renovation contracts that it couldn’t show were “competitively procured or reasonably priced.” The report covered the two-year period beginning in October 2009, a few months after Mr. Castro began his first term as mayor.

The report also found that the city wasn’t aware of the affordability provisions, meaning that nine of 15 homes sold under the program, with renovation costs exceeding $1 million, didn’t adhere to the affordability requirements. The city ultimately repaid $116,740 to HUD for renovation costs on one home for which it couldn’t determine whether the affordability provisions had been satisfied.

The inspector general’s office, or OIG, concluded its report in July 2012, saying that no further follow-up action would be needed because the city, once notified of these issues, immediately began working to address any compliance deficiencies. “No further OIG involvement is warranted,” the report concluded.

In response to the audit, the director of the city’s office of management and budget, Maria Villagomez, said that the city “places a high priority in ensuring federally sourced funding is utilized in a manner consistent with achieving the programmatic goals of its grant programs while complying with federal, state and local law.” She said the city would build a “strong partnership” with a local HUD office to “ensure effective use of federal grant resources.”

About Washington Wire

Washington Wire is one of the oldest standing features in American journalism. Since the Wire launched on Sept. 20, 1940, the Journal has offered readers an informal look at the capital. Now online, the Wire provides a succession of glimpses at what’s happening behind hot stories and warnings of what to watch for in the days ahead. The Wire is led by Reid J. Epstein, with contributions from the rest of the bureau. Washington Wire now also includes Think Tank, our home for outside analysis from policy and political thinkers.